More fraud hits export bank

Published 12:00 am, Saturday, June 26, 2010

The federal export-credit agency that was bilked out of millions of dollars by Andrew Parker of San Antonio — one of the largest thefts it has suffered to date — suddenly has a handful of similar fraud cases in El Paso.

That's the latest prosecution to come to light involving the bank. On June 9, seven people, including Jaime Galvan Guerrero, a prominent businessman in northern Mexico, were indicted on charges that they conspired to defraud the bank of $4 million between 2002 and 2009. And in February, Oswaldo Kuchle, a Mexican businessman who runs an El Paso restaurant, was charged with defrauding the bank of $3.1 million between 2003 and 2007.

The Export-Import Bank and the Internal Revenue Service, which is helping the bank's inspector general investigate the cases, declined comment because the probes are ongoing and suspects still are at large.

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According to dozens of pages of court documents, the cases have similar allegations: A U.S. exporter has foreign business clients, and they seek loans from private commercial lenders who are backed by the Export-Import Bank.

The borrowers claim they'll use the money to buy farm machinery, construction equipment or other products from companies that hire U.S. workers.

But when the loans are made, the borrower splits the money with the exporting company or other loan brokers involved, and they wrongly purchase cheaper equipment from non-U.S. companies or don't buy anything at all — and they use shell companies, falsified financial statements, bogus shipping documents and other fake information to cover up the fraud and the borrowers' lack of liquidity.

Then they stop paying back the loans, which go into default, forcing the Export-Import Bank to make good on them.

The bank assists in financing the export of U.S. goods and services to markets around the world, through export credit insurance, loan guarantees and direct loans.

The pattern of alleged fraud raises questions from its own internal watchdog of whether the Export-Import Bank is doing enough to prevent a repeat of the $107 million swindle involving Parker's San Antonio Trade Group and Mexican borrowers — or the $80 million that Philippine companies bamboozled from lenders and the bank, which backed the loans.

Both cases were publicly disclosed in 2007 and 2008. Some critics in Congress have called for pulling the bank's plug.

Eight people were sent to prison in the Philippines case. Parker is serving nearly 10 years in prison while an accomplice who turned informant, Victor Garate of Comfort, is awaiting sentencing and still cooperating.

In audits and reports to Congress in 2009, the Export-Import Bank's inspector general concluded those large fraud schemes could be replicated in the current underwriting of the bank's medium-term loan program.

The IG recommended more controls, including requiring on-site inspections and appraisals of financed goods; submission of bank statements to confirm the borrowers' liquidity; and more frequent loan payments.

“While the Medium Term Program has experienced some fraud since 2005, it is very unlikely that schemes with the breadth of San Antonio Trade Group or the Philippines would occur today,” Export-Import Bank President James H. Lambright wrote last year in response to the audits and reports.

He said the bank had strengthened some controls, which helped uncover schemes before they resulted in defaults or claims filed with his bank.

“Ex-Im Bank has employed these tools on a selective basis for high-risk transactions. ... We have not broadly imposed these criteria across all transactions under the Medium Term Program,” Lambright wrote. “We believe that this type of sweeping programmatic approach would unduly burden transactions with a high likelihood of integrity and discourage customers with a strong performance history from participating in the bank's programs.”